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Top 10 Reasons Why an Employer Would Want to Offer a 401(k) Plan

May 04, 2018

  1. A small business establishing its first/original 401(k) plan for its employees can qualify for $1,500 in tax credits, $500 each year for the first three years.
  2. Business owners can increase their personal retirement savings (and those of key employees) through plans designed specifically for business owners, such as cash balance plans. (LFG has designated experts who can help design these plans).
  3. A 401(k) allows employees (and business owner) to save more than 3 times what they can save in a Traditional IRA each year ($18,500 vs. $5,500). Those over age 50 can save six times more in catch-up savings ($6,000 vs $1,000).
  4. Except for health insurance/benefits, workplace retirement plans are the most important employee benefit attraction and retention tool employers can offer.
  5. Nearly 40% of workers are “Not Too or Not at All Confident” that they will have enough money for a comfortable retirement, offering a workplace retirement plan will help your employees alleviate that concern.
  6. If desired, 401(k) plans can have features that auto-enroll employees and auto-escalate the percentage they contribute. Due to inertia, most employees don’t actively change these selections, increasing their chances of having adequate assets for a comfortable retirement.
  7. While matching contributions are not required to offer a 401(k), employer matching contributions are tax deductible to the employer. Nearly 3 in 4 workers (73 percent) not currently saving for retirement say they would be at least somewhat likely to save for retirement if contributions are matched by their employer, so an employer match should increase participation.
  8. While taking loans from a retirement plan should be done judiciously as it can reduce the ultimate retirement amount, most defined contribution plans allow loans to be taken. Individual Retirement Accounts (IRAs) do not allow loans.
  9. 401(k) plans can be crafted for any size business, even sole proprietorships. When changing jobs, employees can move the assets in their old employer’s plan to the plan of their new employer, left in the old plan or transferred into an IRA.
  10. Simply put, retirement will be expensive especially the longer people live, some examples: According to the latest retiree health care cost estimate from Fidelity Benefits Consulting, a 65-year-old couple retiring this year (2017) will need an average of $275,000 (in today's dollars) to cover medical expenses throughout retirement, up from $260,000 in 2016.

A couple spending $5 a meal each, three meals a day, for 20 years will spend $219,000 just on food. Over 30 years, it adds up to $328,500.

Establishing a 401(k) allows business owners to save more for retirement, help their employees save for retirement and help attract and retain top employees.

Please speak to your Lifetime Financial Growth advisor to learn more.

References 

  1. https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
  2. http://money.cnn.com/2010/01/13/smallbusiness/cash_balance_pension_plan/index.htm
  3. https://www.irs.gov/newsroom/irs-announces-2018-pension-plan-limitations-401k-contribution-limit-increases-to-18500-for-2018
  4. https://www.towerswatson.com/en-US/Insights/Newsletters/Americas/insider/2012/Attraction-and-Retention-What-Employees-Value-Most-March-2012
  5. https://www.ebri.org/pdf/surveys/rcs/2017/IB.431.Mar17.RCS17..21Mar17.pdf (Figure 1) Lisa Greenwald, Craig Copeland, and Jack VanDerhei, “The 2017 Retirement Confidence Survey—Many Workers Lack Retirement Confidence and Feel Stressed About Retirement Preparations,” EBRI Issue Brief, no. 431 (Employee Benefit Research Institute, March 21, 2017).
  1. https://www.ebri.org/pdf/briefspdf/EBRI_IB_011-2010_No349_EBRI-DCIIA.pdf
  2. https://www.ebri.org/pdf/surveys/rcs/2017/IB.431.Mar17.RCS17..21Mar17.pdf (Figure 1) Lisa Greenwald, Craig Copeland, and Jack VanDerhei, “The 2017 Retirement Confidence Survey—Many Workers Lack Retirement Confidence and Feel Stressed About Retirement Preparations,” EBRI Issue Brief, no. 431 (Employee Benefit Research Institute, March 21, 2017).
  1. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans#1
  2. https://www.irs.gov/retirement-plans/one-participant-401k-planshttps://www.cnbc.com/2017/03/30/heres-what-to-do-with-your-401k-when-you-switch-jobs.html
  3. https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise

Lifetime Financial Growth is an Agency of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. OSJ: 244 Blvd of the Allies, Pittsburgh, PA 15222, # 412.391.6700 PAS is an indirect, wholly-owned subsidiary of Guardian. This firm is not an affiliate or subsidiary of PAS. 2018-59260 EXP 05/2020